Summary
Many retirees assume Social Security benefits are tax-free, but federal taxes can apply depending on combined income. The IRS determines taxable benefits using adjusted gross income, tax-exempt interest, and half of Social Security payments. Depending on income, up to 85% of benefits may be subject to federal income tax. Retirees can reduce their tax burden by managing withdrawals from retirement accounts, strategically timing income, and considering Roth conversions before claiming benefits. Since tax rules vary by state, retirees should also understand local regulations. Careful tax planning helps preserve retirement income, avoid unexpected tax bills, and maximize long-term financial security.
The Motley Fool
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